Milan are reluctant to meet City’s £20 million asking price for Balotelli but will prepare a bumper loan bid for the 22-year-old, who they will offer around £4m (€5m) per year to play at San Siro.

City manager Roberto Mancini is due to meet director of football Txiki Begiristain this week to finalise the club’s plans for the window, with Balotelli’s future top of the agenda after his poor performance in Sunday’s Manchester derby.

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Vittorio Campanile | Goal.com Italy

AC Milan are very keen on making a statement of intent by signing Balotelli and making him their best paid player even if they would be unable to match the wages City are currently paying.

Allegri’s squad is still lacking a top class striker to play alongside Stephan El Shaarawy with the likes of Giampaolo Pazzini having struggled so far this season, but a loan deal looks the most likely option, certainly in January, with a permanent move on the summer dependent on Balotelli's performances and whether City would be willing to accept less than the £24m they paid for the striker in 2010.

Mancini has accused Balotelli of risking his career with his lack of professionalism and is ready to allow the controversial striker to leave - either permanently or on loan - if his attitude does not improve before the New Year.

Balotelli’s contract expires in 2014 and there are no plans for City to offer him new terms as Begiristain and Mancini look to free up room to rebuild the squad, with Atletico Madrid star Radamel Falcao and Malaga playmaker Isco their top targets.

While City would prefer a permanent deal given the former Inter man’s sell-on value is rapidly diminishing, they accept that a loan move is more likely given Milan’s financial problems and fading interest from French side Paris Saint-Germain.

Balotelli is believed to be keen on a return to Italy - where he is currently visiting his newborn daughter - and would accept a small pay cut on his £110,000-a-week deal at City.

Mancini has consistently defended Balotelli - who has scored just one league goal this season - and convinced the City hierarchy to resist a big-money approach from PSG during the summer after the former Inter man starred at Euro 2012.

But Begiristain is keen to make his mark on the City squad and Mancini also appeared to lose patience with the forward on Sunday, replacing him with Carlos Tevez in the 52nd minute.

"I love Mario but it is important for him to start to think about his job," Mancini said after his side’s 3-2 defeat at the Etihad Stadium.

"He has everything to play well but he can't continue to play like today. We wanted more from him.

"When you have a player that has Mario's quality, you cannot understand why he continues to throw it out of the window. It is incredible.

"I have seen players in my life with fantastic quality. But in the end, they did nothing. I don't want Mario to finish like these players. It would be bad for him."

The deal could be complicated by a frosty relationship between City and Milan following protracted negotiations over a move for Carlos Tevez last season, which eventually fell through as the Argentine striker stayed in Manchester.

Balotelli's agent, Mino Raiola, has claimed his client will remain at City after the close of the January transfer window. He said: "Absolutely [he will]. You can ask me the question another four hundred times and it will always be the same answer."

But Goal.com understands Balotelli would welcome a transfer in the New Year while, in any case, the decision on his future is likely to be taken out of his hands by Begiristain and Mancini.

Balotelli joined City from Inter for £24m in 2010 but has never hidden his desire to one day play for their great rivals, having once been pictured wearing an AC Milan shirt to the fury of the Nerazzurri supporters.